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by: Miss Declan O'Hara


Miss Declan O'Hara
GPA 3.77

Anthony Gill

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About this Document

Anthony Gill
Class Notes
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This 3 page Class Notes was uploaded by Miss Declan O'Hara on Wednesday September 9, 2015. The Class Notes belongs to POL S 270 at University of Washington taught by Anthony Gill in Fall. Since its upload, it has received 21 views. For similar materials see /class/192683/pol-s-270-university-of-washington in Political Science at University of Washington.




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Date Created: 09/09/15
Trade offs due to limitedscarce resources there are inverse relationships between variables ie patent protection in the pharmaceutical industry protect the pharmaceuticals for their future research benefits and cover their upfront costs but sacrifice some lives who cannot afford the medicine Or no patent and allow everyone to create the medicine but no future research Opportunity costs a dollar spend here is a dollar less we can spend elsewhere Social welfare wealth maximization calculated in a monetary value looking at public policy to maximize the spread between social benefits and social costs How wealth is distributed equity and efficiency economists often focus on costsbenefits not on who reaps the costs and benefit just look at the absolute value Marginal utility of benefits gained Cost Benefit Analysis Public Choice theory what policy makers actually care about linking to social welfare maximization How to maximize social welfare Pecuniary costs and Nonpecuniary costs looks at the value of life to look at things in both monetary and nonmonetary costs e taking up a job in a landmine you might be paid more but the healthlong term costs of working there might be hazardous toxins breathed in that might not be accounted for immediately There are risks ofpeople undervaluing their life thinking it is worth less than it really is they would accept jobs with more risks without realizing it Transaction costs often considers a market failure travel coststime costsschedule conflicts high transaction costs reduces gains from trade It hinders the full use of the invisible hand and function of the market Market failure transaction and information costs we might be limited by natural circumstances that prevents us from achieving higher gains from trade Efficient theft theft can be economically efficient if its objective is to move the resource to its highest valued use stealing achieve the same efficient allocation of resource as selling market However we can never quite knowthat theft may have moved to a lower valued use people might start underinvesting if theft is legalized since they would see no need to buy anything if they can just steal it A market cannot move a resource to a lower valued use but a nonmarket transaction can Gains from trade when resources are transferred to a highervalued use Advertising increases gains from trade nobody buys something they don t want Patent copyright protection assigns exclusive rights over sale and distribution of intellectual property to the owner of that property Tradeoff benefit to provide incentive to continue innovating cost can create monopoly pricing since they re the only producer Which reduces social welfare as people might not be willing to buy at such a high price Monopoly pricing creates a gap between the price of the product and the minimum amount needed to produce the product ifa consumer s willingness to pay falls within this gap there are gains from trade that will not be realized because the price is too high Price vs value price itselftells us nothing about the maximum amount that buyer would be willing to pay And it is this maximum amount that establishes a buyer s value for the product Rational addiction an addict s current consumption is dependent on past and future consumption They would look at costs and benefits the whole time horizon past and future consumption complements each other More in the past would mean more today less in the future would mean less today Looks at the concept of smoking s costs and bene ts Also touch base on the concept of reinforcement effect whereby more today would mean more tomorrow any increase consumption leads to an increase future consumption any product can be addictive Rational addiction is also about the notion of consumer sovereignty consumers decide what is in their best interest even when purchasing products that may be addictive Some rational addicts like to be controlled since they may have some selfcontrol help such that they welcome having policies that is aimed at reducing smoking Negative externality when an individual s private action imposes a cost on another individual Private actions may impose social costs factories focused on maximizing profits ignores the pollution they produced to the environment have laws and regulations that monitor activities Property rights where the right to the resource is assigned to ie the sunlight who owns the sunlight Fontainebleau or Eden Roc Property rule once the right is given it needs to be protected Property rule indicates that the court will not offer any further intervention after the property right is assigned parties are left with their own devices and work out whatever problems they may have Property rule may not achieve the efficient outcome unless court knows what is the highest valued use Negotiations are needed to achieve efficiency Liability rule protect property rights when the court set damage payment schedule that can allow one party to affect the actions of another party If court knows the value of one party but not the other thus cannot make the efficient outcome they can allow for a payment schedule for one party to influence the behavior of another party without any negotiation offsetting behavior unintended consequences the technological safety aspects of seat belts may be offset by the behavioral responses of drivers being more careless People who wear sunblock feels safer under the sun so they spend longer amounts of time in the sun thus increasing their exposure to the rays negating the effects of the sunblock altogether Using protective sportswear increases reckless behavior Increased safety is not solely a technical problem it is also a problem of how people behave with technical safeguards it can undermine the policy makers original obiectives Moral hazard the insurance coverage changes the way you behave and increases the probability of your car being stolen since you are not going to park in a garage pay morehassle of going in and out This is because of unobservable action where you park the car or any other factors are not observed by the insurance company they only look at where you live and what car you drive Another factor is the concept of full insurance although the car might be fully insured the time you spent and frustration you get for getting the car stolen is not taken into account you still have to bear part of the risk thus reducing the moral hazard problem Tort Law is the body of law that deals with wrongful acts in which private citizens can sue their iniures for damages in civil court what legal rule should be adopted to determine a firm s liability in a productrelated accident Can also use contract laws product warranties or use government regulations Product liability tort law cost ofincreased care can be weighed against the benefit ofa lowered probability ofa productrelated accident Tort law establishes a liability rule that determines the extent of liability the firm faces when a consumer suffers damages from a defective unit giving firms incentive to take efficient level of safety precaution Firms must trade off the cost of additional safety with the benefits ofadditional safety strict liability full responsibility ofany defects consumers might take advantage ofit and be reckless and there might be lots of litigation that comes with it negligence rule a firm can escape liability for a manufacturing defect if the firm is found to have taken a sufficient level of care often referred to as efficient or due care A defect can exist without the firm being negligent as long as the firm is maintaining the efficient defect rate 9also need to take into account the due care level of the firm and how much actual care was the firm taking Hard for court to keep track of this Negligence rule provides the firm with the incentive to take efficient safety efforts it simultaneously provides the consumer with the same incentive reduce moral hazard Manufacturing defectzunintended flaw due to some mishap in the production process Design defect a flaw that is common to every unit produced Caveat emptor firms faced absolutely no product liability law at all There are incentives for firms to take due care because of full price price you actually pay and gains from trade the value and price you gain of buying additional safety features However consumers might underestimate risks Or firms may have to provide warnings with their products incentive to give due care companies need to provide the optimal warning otherwise a warning defect might occur implying firm s negligence


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